Small business financing enables business owners to plan their finances and maintain steady cash flow throughout the year. However, the holidays often bring an influx of unique financing challenges that can disturb your business model.
Understanding how financing works and what lenders look for will help accelerate your financing approval and receive additional working capital when you need it, so you aren’t scrambling for cash or considering higher cost alternatives.
How long does it take for finance approval?
Approval for business loans is a dynamic process. Some loans can be applied for, underwritten, approved and funded within hours, whereas others may take weeks or months depending on the loan type you are seeking.
For example, let’s say you’re a hardware store owner building a warehouse to store a new range of inventory. You’ll need a forklift to handle this new storage. Equipment finance is a good choice as it allows you to remain agile with your cashflow, while making low monthly repayments. These applications can have a relatively fast turn around with approval often received within 24 hours, dependent on your chosen lender. In contrast, if you are purchasing a new commercial property to expand your business, commercial real estate loans can take up to 60 days or more before they are approved.
The key to understanding the loan approval timeline is to identify the type of loans you need and what you plan to use the funds for. Your broker can give you an indication of how long the process should take.
Get your documentation in order
Business loans generally require more documentation than home loans. To ensure you have the best chance for quick loan approval, it’s important to have the relevant records prepared. These include:
• Financial statements – Displaying your assets, liabilities, net worth positions, income, and expenses.• Business Financials showing Last 2 years of Profit and loss as well as Balance Sheet statements• Proof of individual income – In the form of your two most recent tax returns and an ATO Notice of Assessment.• Bank statements – Presenting a holistic picture of your financial position, including any loans and credit cards you may have with other financial institutions.• Identification – This could include your driver’s licence or passport. If you’re an existing customer, this may not be necessary.
While it can be harder for new and start-up businesses to receive loan approval, there are details you can provide to ensure the result of your application is favourable. These could include:
• Business plan• Cash flow projections• Business Activity Statement (BAS)• Interim financial statements• Contracts (current or future agreements with customers)
When purchasing equipment, there are also asset-specific items you will need to provide, such as:
• A vendor-supplied copy of the condition report• Interstate registration transfer and insurance• Supporting evidence on what the asset will be used for
A broker can help streamline this process by providing you with a checklist of the required documents and assist you in sourcing them.
Be prepared for common questions
All loans contain a risk factor for both the borrower and the lender. The lender risks losing their capital if the borrower defaults, and the borrower needs to ensure they can make their loan payments to avoid collections and excessive surcharges.
Lenders will want to know:
• Whether you can afford the monthly payments?• How much funding do you need?• What you will do with the funds if approved?• How you plan to repay this loan?
Although each lender has its unique criteria, small business owners should understand the general criteria before applying for additional financing.
How a broker can help
When you work with a broker, you have an advocate representing you to multiple financing lenders.
Working with a broker provides peace of mind as they answer your financing questions with your best interests at heart, negotiate interest rates and provide invaluable insight, freeing up your time and resources to focus on your business.
